Nomura Holdings Inc

TSE:8604

Earnings Call Analysis

Nomura Holdings Reports Strong Q2 Growth with Increased Revenue and Profits

In the second quarter, Nomura Holdings recorded a net revenue of JPY 483.3 billion, up 6%, with net income soaring 43% to JPY 98.4 billion. The firm's annualized ROE reached 11.6%, exceeding its long-term target. Wealth Management showed promising signs with a 10% rise in recurring revenue to a record JPY 50.3 billion. Dividends were set at JPY 23 per share, indicating a 40.6% payout ratio. Despite some volatility in August, Nomura remains confident in robust demand; net inflows into recurring revenue assets outpaced targets, reaching JPY 438.3 billion. The outlook remains positive, signaling resilience amidst market fluctuations.

Strong Financial Performance

In the second quarter of the fiscal year ending March 2025, Nomura Holdings reported robust financial results. The group's net revenue rose by 6% quarter-on-quarter to JPY 483.3 billion. This growth was mirrored in income before income taxes, which grew by 29% to JPY 133 billion. Notably, net income surged by 43% to JPY 98.4 billion, marking the highest income levels since June 2020. This solid performance is supported by an annualized return on equity (ROE) of 11.6%, exceeding the company's long-term target of 8% to 10%.

Divisions Driving Growth

All divisions of Nomura contributed to the positive financial results, demonstrating a balanced revenue structure. The wholesale segment saw significant improvements, particularly in fixed income and equity products, supported by heightened market activity and client engagement. Wealth Management also experienced increases, with net revenue rising by 2% to JPY 116.7 billion and a corresponding 7% rise in income before income taxes to JPY 45.3 billion. This growth is attributed to a 30% increase in recurring revenue within the asset management sector, achieving a record-high income.

Cost Control and Operational Efficiency

Nomura has successfully controlled costs across its operations, achieving a cost-to-income ratio improvement in the wholesale segment to 83%. This was made possible through strategic initiatives that cut unnecessary expenses while aligning operational efficiencies. For instance, wealth management reported JPY 20 billion in cost savings due to operational reviews and efficiency measures. This disciplined cost management is key as the company aims to sustain its profitability amidst market fluctuations.

Stable Revenue Trends and Future Guidance

Looking ahead, Nomura remains optimistic about the stability of its revenue streams. Despite some market volatility, recurring revenues in the wealth management division are anticipated to remain strong, bolstered by ongoing positive inflows. The firm has recorded total net inflows of JPY 826.2 billion for the six-month period, surpassing the annual target of JPY 800 billion. Increased client activity and a robust financial advisory effort are expected to drive continued growth in recurring revenues, which are projected to accelerate as market conditions stabilize.

Market Position and Strategic Initiatives

Nomura is positioning itself strategically to leverage market opportunities, especially within the workplace sector—an area identified as having vast potential for customer acquisition and service expansion. The firm is prioritizing the acquisition of quality clients over quantity, focusing on providing comprehensive financial services tailored to high-net-worth individuals. The introduction of new products and enhanced customer engagement strategies are also expected to support this growth trajectory.

Dividend Announcement and Shareholder Value

Reflecting its solid financial health, Nomura declared a JPY 23 dividend per share, representing a payout ratio of 40.6%. This commitment to returning value to shareholders underscores the firm's confidence in its ongoing profitability and operational efficiency. The management aims to maintain or even increase the dividend as it continues to strengthen its financial benchmarks.

Sustaining Growth Amid Market Challenges

While the second quarter was robust, the management acknowledged challenges in October due to external macroeconomic factors impacting market volatility. However, they anticipate a recovery as client confidence strengthens following key political events, like the upcoming U.S. presidential elections. This potential rebound in market activity may further enhance Nomura's revenue streams, aiming to maintain the strong operational performance seen in the second quarter.

Investment and M&A Opportunities

Nomura is also exploring strategic mergers and acquisitions within the asset management sector to enhance its portfolio. The CFO indicated that further diversification of revenue sources, particularly through alternative investments, forms part of their growth strategy. The company remains vigilant in assessing attractive investment opportunities while maintaining a balance in capital allocations directed toward sustainable growth.

Earnings Call Transcript 2025-Q2

[Operator]

Good day, everyone, and welcome to today's Nomura Holdings second quarter operating results for fiscal year ending March 2025 Conference Call. Please be reminded that today's conference call is being recorded at the request of the hosting company. Should you have any objections, you may disconnect at this point in time.

[Operator Instructions] Please note that this telephone conference contains certain forward-looking statements and other projected results, which involve known and unknown risks, delays, uncertainties and other factors not under the company's control, which may cause actual results, performance or achievement of the company to be materially different from the results, performance or other expectations implied by those projections.

Such factors include economic and market conditions, political events and investor sentiment, liquidity of secondary markets, level and the volatility of interest rates, currency exchange rates, security valuations, competitive conditions and size, number and timing of transactions.

With that, we would like to begin the conference. Mr. Takumi Kitamura, Chief Financial Officer. Please go ahead.

[Takumi Kitamura, executive]

Good evening. This is Takumi Kitamura, CFO of Nomura Holdings. Let me give an overview of our financial results of the second quarter of the fiscal year ending March 2025 using the document.

Please turn to Page 2. Group-wide net revenue increased 6% quarter-on-quarter to JPY 483.3 billion. Income before income taxes grew 29% to JPY 133 billion. Net income was JPY 98.4 billion, representing a 43% increase over the last quarters. We had a very strong quarter.

Income before income taxes and net income were both at their highest level since the quarter ended June 2020. All three international regions were part of and some international entities made use of tax loss carried forward, lowering our effective tax rate to 27%. EPS was JPY 32.26 and annualized ROE was 11.6%, which is at the upper limit of our 2030 quantitative target of ROE of 8% to 10% or more.

Three segment income before income taxes on the bottom right was JPY 122.5 billion, marking the sixth straight quarter of gains we were able to deliver operating leverage as all divisions booked higher revenues, and we maintained our control of costs.

In wholesale, our cost-to-income ratio improved to 83% and income before income taxes doubled.

Before going into each business in detail, let's first take a brief look at the results of the first half of the fiscal year. Please turn to Page 3. The bottom left shows net revenue of JPY 937.8 billion, 31% higher than the first half of the previous year. Income before income taxes grew 129% to JPY 235.9 billion, while net income increased by 186% to JPY 167.3 billion. EPS was JPY 54.58 and ROE was 10.1%.

The bottom right gives a breakdown of income before income taxes. All divisions reported strong gains with fee segment income before income taxes totaling JPY 209.1 billion. This represents more than 70% of March 2025 KGI target of JPY 288 billion announced at our Investor Day in May last year.

In Wealth Management, Asset Management type business gained further grounds to record a 30% increase in recurring revenue or investment management, asset management business continues to gain traction with business revenue at a record high since the division was established.

Both divisions continue to build up stable revenues where we generate revenues based on the level of client assets. In wholesale, all business lines, fixed income, equities and investment banking and all regions reported stronger revenues compared to the same period last year, underscoring progress in diversifying our revenue sources. As revenues grew 30%, we controlled costs to deliver income before income taxes 6.4x higher than the previous year.

Based on this performance, today, we announced a JPY 23 dividend per share for shareholders of record as of the end of September, giving a dividend payout ratio of 40.6%.

Now let's take a look at the second quarter performance by segment. Please turn to Page 6. The percentages I referred to here are all quarter-on-quarter comparisons. Wealth Management net revenue increased 2% to JPY 116.7 billion and income before income taxes grew 7% to JPY 45.3 billion. Income before income taxes was the highest in 9 years since the quarter ended June 2015.

During this quarter, we witnessed a sharp market adjustment in early August, followed by volatile market conditions. However, our sales partners advised and followed up closely with our clients based on their portfolios and market data, allowing clients to remain relatively cool.

As we had already been advising clients with a view to medium- to long-term investing and diversification, our clients' unrealized gains have increased and we were able to achieve strong net inflows of recurring revenue assets amid this adjustment phase. As a result, recurring revenue increased 10% to a record high of JPY 50.3 billion.

While bonus provisions were up in line with top line performance, we continue to control non-personnel expenses, giving recurring revenue cost coverage ratio of 70% beating our March 2031 target, long ahead of schedule.

Please turn to Page 7 for update on total sales by product. Total sales declined JPY 900 billion to JPY 5.9 trillion, but this is because last quarter included a tender offer of over JPY 1 trillion. Excluding that, sales of stock increased from last quarter. We executed multiple primary transactions and took orders from clients taking advantage of the market volatility from augurs to buy on the dip resulting in sales of over JPY 4 trillion.

Sales of investment trusts and discretionary investments slowed from the strong prior quarter, but remained robust compared to the fourth quarter of the last fiscal year. Sales of insurance products increased on demand for retirement funds and estate planning while sales of products and services easy to transact based on proposals and advice from sales partners remain solid.

Page 8 shows KPIs mostly trending above the fiscal year targets. The top left shows net inflows of recurring revenue assets of JPY 438.3 billion, representing a further gain from the robust prior quarter. As a result, net inflows of recurring revenue assets for the 6 months period were JPY 826.2 billion, outstripping our annual target of JPY 800 billion.

As of the end of September, recurring revenue assets were JPY 23.4 trillion, a decline from last quarter due to market factors, but quarterly average remained roughly unchanged. Recurring revenue was at a record high due to changes to our product mix and the fact that some half yearly fees are received in the second quarter. The number of workplace services provided shown on the bottom right was 3.79 million, which is also ahead of our KPI target of 3.66 million.

Please turn to Page 9 for Investment Management. Net revenue was up 18% at JPY 56.1 billion, while net income before income taxes grew 38% to JPY 31.9 billion. As you can see in the bottom left, stable business revenue was JPY 39.4 billion, marking a record high for quarterly revenue since the division was established.

The asset management business remained strong, while assets under management at the end of September dipped from last quarter, the quarterly average was roughly unchanged. We reported ongoing inflows into products where investment management expertise is required, such as active fund management and private assets giving us a better product mix and higher investment management fees.

Investment gain loss was up 95% at JPY 16.7 billion, driven by significant increase in American Century Investments related valuation gain loss.

Please turn to Page 10 for an update of the asset management business, which generates business revenue. As you see on the top left, assets under management at the end of September is JPY 88.8 trillion, down from last quarter due to market factors, but the quarterly average was roughly the same.

The bottom left shows another quarter of net inflows of JPY 1.1 trillion, JPY 650 billion of which was into investment trust business and JPY 470 billion into the investment advisory and the international business. In the investment trust business, MRF reported over JPY 440 billion of outflows, hinting at the prominent shift of funds to new investments excluding ETFs and MRF, investment trusts booked inflows of JPY 570 billion into private assets, balanced funds and global equities across diverse distribution channels, including Nomura Securities regional financial institutions and other securities brokers.

ETFs booked inflows of JPY 520 billion, mostly into Japan equities. In the investment advisory and international businesses, the international business made a strong contribution, driven by inflows into U.S. high-yield bond funds.

Next please turn to Page 11 for an overview of wholesale performance. Net revenue increased 8% to JPY 263.4 billion. As shown on the bottom left, Global Markets revenues grew 6%, while Investment Banking revenues were up 14%. At the same time, wholesale expenses declined 3%, although bonus provisions increased in line with top line performance. Severance-related expenses included in last quarter were no longer present and this combined with yen appreciation to lower cost.

As a result, income before income taxes significantly increased by 114% to JPY 45.3 billion, and our cost-to-income ratio improved to 83%.

Please turn to Page 12 for an update on each business line. Global Markets net revenue increased 6% to JPY 221.1 billion. This quarter saw a spike in volatility on the back of uncertainty over the U.S. economy a sale of tech stocks and geopolitical risks. With this environment, we were able to provide liquidity to the market and monetize robust client flows.

Fixed income net revenue increased 2% to JPY 127.8 billion. Macro products had a good quarter, while with rates looking stronger with revenues from an uptick in client activity in Japan and Americas and FXCM performance improving in AEJ. In spread products, credit slowed in Japan, from a strong prior quarter and securitized products revenues declined primarily in the Americas. Equities net revenue was JPY 93.2 billion, up 14% over the first quarter.

Financing and derivatives had a strong quarter in Japan and AEJ while equity products revenues grew substantially.

Please turn to Page 13 for Investment Banking. Net revenue increased 14% to JPY 42.3 billion. In Japan, we supported several corporate actions aimed at boosting corporate value, resulting in record high revenue since the fiscal year ended March 2017 when comparisons are possible. By product, advisory revenues grew internationally, driven by EMEA's involvement in high-profile transactions such as acquisition of Britvic by Carlsberg's, U.K. subsidiary. Although Japan slowed from the strong performance last quarter, we supported multiple tender offers and management buyouts.

Revenues in Financing & Solutions were up markedly. ECM revenues doubled on the back of offerings to sell cross-shareholdings while DCM executed many large insurances, including SoftBank Corp's bond type class shares, SEKISUI HOUSE's, subordinated bonds and INFRONEER Holding's green bond type class shares affairs in Japan.

Please turn to Page 14 for noninterest expenses, group-wide expenses were roughly flat at JPY 350.3 billion. Compensation and benefits were unchanged at JPY 184.7 billion, although bonus compensation increased in line with performance, as mentioned, severance-related expenses declined from last quarter. Commissions and floor brokerage increased due to high trading volume, but other expenses declined 6% on lower professional fees.

Please turn to Page 15 for an update on our financial position. Table on the bottom left showed Tier 1 capital of JPY 3.4 trillion, a decrease of approximately JPY 150 billion from the end of June. In addition risk-weighted assets declined by JPY 900 billion to JPY 19.2 trillion, resulting in a Tier 1 ratio -- capital ratio of 17.6% and common equity Tier 1 ratio of 15.7%, both roughly the same as last quarter.

That concludes our overview of our second quarter results. To sum up, despite the market volatility this quarter, we achieved annualized ROE of 11.6%. The second quarter of results to consistently achieve 2030 quantitative target of ROE of 8% to 10% or more. ROE of 11.6% is the highest since the quarter ended December 2020, at the time wholesale accounted for 60% of three segment income before income taxes. But now earnings are well balanced across three divisions, giving us higher quality ROE.

Recurring revenue in wealth management and business revenue in investment management, both of which are sources of stable revenues have increased by nearly 80% since the 2020 December end quarter, lifting our repeat business baseline ROE. We have also diversified our revenue mix in wholesale by growing our equity products and securitized products businesses into second and third pillars to complement our macro products business.

In October, both wealth management and wholesale slowed down from the strong second quarter as clients increasingly sat in the sidelines, given various political events. That said, wealth management revenues are still trending at a high level, contributing to baseline ROE while wholesale revenue diversification continues.

As demonstrated in the second quarter, we will continue to control costs and take on appropriate risk in line with market conditions as we aim to boost our bottom line. Thank you very much for your continued support.

[Operator]

[Operator Instructions] The first question is by SMBC Nikko Securities, Muraki-san.

[Masao Muraki, analyst]

SMBC Nikko Securities. This is Muraki speaking. I have two questions. First of all, Page 11. This time, as you have explained, in Japan, large ECM deal was gained and performance was strong in Asia. And that applies not just to wholesale, but to wealth management as well. Are these performance is sustainable? ECM, when I read the press releases, volatility impacted in and after August. So therein after, it hasn't been so strong, despite the strength in July. But regarding Asia, stimulus package in China made a contribution. And in comparison to recent quarters, profits in Asia seem to be stronger. What is your forecast for the months and years ahead? That's my first question.

Second question is on capital policy. Regarding share buyback, what kind of debate had taken place to reach the conclusion not to buy back shares. And as you read in your report, CET1 ratio target maximum. Regarding the study of setting the maximum, where are you in terms of your discussions?

[Takumi Kitamura, executive]

Thank you very much. On your first question, of ECMs in Japan and whether such performance is sustainable. There are many in the pipeline, including large deals and Euro-Yen CB with rate increase. These are some of the areas we are injecting efforts into. In this area, competition is becoming intense, but in the selection of lead managers, we're doing our pitch so that we're not impacted by competition.

And in terms of pipeline, there are several potential deals, and we wish to realize those potential deals in the pipeline. Another issue is selling policy holdings, and we think that the level of sales will remain high. Nomura will continue to support the capital policies of our clients. So that's my response regarding sustainability of ECM deals.

Now on to Asia. If we look at the past track record, FX reemerging and credit, they have been the core of our business. More recently, in addition, we have begun to see strength in equity, equity derivative business. And another area is IWM, International Wealth Management. So with the addition of these businesses, we're seeing higher diversification of revenue sources. In the quarter that had just ended, FX emerging made come back, which was an area we had been struggling and the equity team is becoming stronger.

Muraki-san, as you have rightly pointed out, Chinese equity, Hong Kong equity boosted, but was there that tailwind? I wouldn't deny, but I think more had to do with diversification of revenue sources and widening of coverage in terms of products. And those factors delivered results.

And on your second question, buyback, Basel III will kick in, in March next year, FRTB impact will have to be evaluated. And the impact has become more visible. On the other hand, there are other things on our mind. So we're not denying share buyback as an option. But as we think about many elements, this time around, we decided not to. But on the other hand, 50% or higher total payout ratio. This has been the external commitment that we had made. So as we proceed into the second half, we will continue to consider such option.

And CET1 ratio, maximum ceiling, Basel III impact is being objectively assessed. Frankly speaking, Basel 2.5 versus Basel III, the behavior is different. In the case of Basel III, we would like to monitor more softly. Not to say that we will be on the sidelines for a year or 2. But for the time being, we would like to observe the situation to think about what range would be appropriate for our firm.

So next fiscal year, an early timing in next fiscal year, we are hopeful that we will be able to set the ceiling. In terms of the buffer -- not the buffer, but Tier 1 or CET1 range, we will be studying that. And to what extent do we do or not do buy back, those are some of the items that we will continue to consider.

[Masao Muraki, analyst]

I'm not sure whether I'm supposed to ask, but you said you're thinking about many other things as well. Is that something to do with the regulatory authorities? Or are you thinking about investments?

[Takumi Kitamura, executive]

Wholesale performance is significantly improving. So in the short run, we may allocate capital to such area. And we've been talking about inorganic opportunities, and we are continuing to pursue such opportunity.

[Operator]

The next question comes from Watanabe-san from Daiwa Securities.

[Kazuki Watanabe, analyst]

I am Watanabe from Daiwa. I have two questions. First, regarding fixed income business of GM, major U.S. players, 2% decline on a year-on-year basis, but in your case, plus 32% in your case compared to U.S. peers, what was the factors of outperformance of FICC revenue for you?

And the second question is related to wealth management in the July September quarter? What was the monthly revenue trend. Could you comment on that? And also -- and what was the impact of the plunge of market in August? And how did you address that situation in August?

[Takumi Kitamura, executive]

First, regarding fixed income. On a year-on-year basis, we grew greatly, but that's from the start of a low level last year. So last year's level cannot really be something that we can compare this year against. But as mentioned, revenue diversification has progressed, and that is a major point. Securitized products and others have increased in its level.

And in the second quarter, in the area of FX and emerging volatility went up, but we could monetize in those businesses. Also in macro, our rates product which struggled last year has gradually seen recovery of clients' activities and especially in Americas, client flow increased and which -- and that's something that we could monetize.

As a result, on a year-on-year basis, we could achieve a significant improvement and we outperformed our peers and we could gain this market share.

Regarding your second question. Your second question, monthly revenue. In July, was the highest in August and September due to market factors, monthly revenues were lower. And in July, equity primary -- we had multiple equity primary deals, so that contributed to our strong performance.

And in August, as you know, in the early part of August, there was a plunge in the market. And when stock prices were low, some investors bought, but there was a slowness in the market. So we spent sufficient time explaining situation to clients. So the situation in August is something that we could accept. And then in September, the market was not very clear in terms of the direction. And at the Tokyo Stock Exchange and other exchanges, the transaction volumes shrunk in market. So July was the strongest followed by weaker months.

[Kazuki Watanabe, analyst]

Regarding the October onward for Wealth Management, what is the level of October compared to the July, August and September. So we have just come out from October, I said there is slowness, but it's not really slow. Overall, transaction volume has come down. So we are affected by that. But as operating environment, environment is also weak. So the decline is not so big. Thank you very much for your answer.

[Operator]

Now we move to next question. As we couldn't confirm your affiliation, please state your company name and your name. [Operator Instructions]

[Natsumu Tsujino, analyst]

BofA, Tsujino speaking. I have two questions. First, you've been talking about equity and fixed income and high performance in Q2. But since the beginning of October, assuming there has been change, where have those changes occurred?

Second question, ACI. Volatility has, this time around, delivered positive results, but your hedging and yet you are able to lock in such significant gains. How is this being achieved? Is it this cap rate of interest rates? And to what extent did that contribute? But it's really difficult to understand why this large gain.

Then in Q3, will it return to the other way around? Will there be a reversal? So interest rate and the AUM increasing. So the positive factor of rate came back -- will it come back in Q3? So is this JPY 17 billion, JPY 18 billion. Can you give us a breakdown of factors and how they contributed?

[Takumi Kitamura, executive]

Thank you, Tsujino. Let me try to respond. The slight slowness in October was caused mainly by macro factors, equity and securitized products. Equity and securitized products are doing well. But since the beginning of October, ForEx emerging and rates there has been slight sluggishness in these areas. Rates trend is uncertain and dollar rate has become rather uncertain. So these are factors that we can't avoid.

And on this point, next week, there will be the presidential election in the United States. And it is considered that it will take 4 or 5 days for the accounts to be announced. And that's taken into consideration by the investors, and they are on the sidelines taking wait-and-see attitude. But dry powder is piling up. So in the second half, we think that there will be a comeback of activities in the market.

And on ACI, I am not able to comment on the details, but the factor for markup, one, AUM has increased, partly driven by market factors, but -- their business is strong and AUM is increasing with investments increasing. Their business is strong. That has led to increased AUM. That part is difficult to hedge.

So of course, that remains a gap and rate decline is one of the major contributors to the big markup. It's not that why we do 100% hedge on a fully hedged basis. So in the end, this was positive when rates go up, of course, it would go to the reverse direction. But as I said, it's partly hedged. So it depends on the degree. To what extent will that deliver results.

[Natsumu Tsujino, analyst]

This time, in these numbers, is it half-half, what's the breakdown? What's the contribution of AUM increase? Is that the majority? Or do you think that the rate impact was bigger than AUM? Or is it difficult to answer?

[Takumi Kitamura, executive]

Stock prices are going up, so AUM has increased, partly driven by stock price increase and the business expansion also was a contributor. So each factor had made impacts. I cannot make a clear comment regarding the breakdown, but both factors were both significant contributors.

[Operator]

Now we move to next question. As we couldn't confirm your affiliation, please state your company name and your name. [Operator Instructions]

[Unknown Analyst]

I'm [indiscernible] from JPMorgan Securities. Can you hear me?

[Takumi Kitamura, executive]

Yes.

[Unknown Analyst]

I have two questions. First question, regarding wholesale cost-income ratio improvement. So 83% was achieved this time. Regarding top line, the revenue diversification has advanced, as you mentioned. So regarding cost reduction, so severance-related costs came down, but operational efficiency improvement and what is the progress of the core cost reduction?

My second question is also related to cost of wealth management. So non-personnel cost was reduced according to the explanation in the slide. But what is the content and what more room for saving is there for wealth management's cost? So those are my two questions.

[Takumi Kitamura, executive]

Thank you very much for your questions. Firstly, regarding cost/income ratio of wholesale, is it sufficient? No, we are not satisfied yet, but 83% was achieved this time. So as the direction, it is the positive direction. All along, we had SRC driven cost saving initiatives and SRC initiatives -- out of SRC initiatives, JPY 50 billion cost saving measures have been implemented already. So now the effects of savings are now materializing. But the large picture, operating model change for IT architecture transformation such areas where we have specific measures that are waiting to be implemented. So we would like to do more from here.

So overseas, there's inflationary environment. So various cost -- upward cost pressure is mounting. but by suppressing such cost, we would like to tightly control costs.

Regarding wealth management cost control. Compared to wholesale, wealth management cost saving has been going ahead of wholesale. As we looked at all systems and various types of costs, we have eliminated what is not necessary. So JPY 20 billion of cost saving was identified, and we have implemented measures to achieve that, and we are seeing the effect of that.

But the review of wealth management cost was based mostly on the removal of unnecessary costs, but we are now in the next stage where we are revisiting the entire picture. For example, operational front to back process review is conducted. For example, how much cost is being incurred in which department.

So from wealth partners, wealth sales partners to operating centers. We are looking at every detail in our efforts to change operational structure and such initiative has started we're expecting the result to come out from such initiatives down the road.

[Operator]

Now we move to next question. As we couldn't confirm you affiliation, please state your company name and your name. [Operator Instructions]

[Unknown Analyst]

SBI Securities. My name is Otsuka, I hope you can hear me?

[Takumi Kitamura, executive]

Yes, we can hear you.

[Unknown Analyst]

There's an overlap with the question asked before myself, that wholesale cost ratio. In your explanation, Kitamura san, you said that it's -- there could be the issue of ForEx and revenue, but again, we understand that this is sustainable. There was a sudden improvement between Q1 and Q2. So what would be the standard level?

[Takumi Kitamura, executive]

83% cost ratio, expense ratio in comparison to last year, it's much more comfortable. We are controlling cost and this time around revenue increased, which was a major factor. As I explained in the previous question and answer dialogue, cost control will be continued. Separate from the level of revenue, we will steadfastly continue to implement cost control initiatives. If we can maintain this level of revenue, naturally, the cost ratio is achievable. And there's further room for reduction.

[Unknown Analyst]

Second question, Page 26. JPY 4,623 billion inflows of cash and securities, the quite strong JPY 1,649 billion for Q2, what -- can you explain the background factors for the strong inflows of cash and securities? I asked a similar question in your results announcement for Q1, but I repeat the same question.

[Takumi Kitamura, executive]

What's the backdrop of money coming in? The business strategy turnaround has made contributions to our performance. New customers, acquisition of new clients is proceeding well. And when we look inside, the impact from existing customers seems to be bigger.

As a result of segmentation, per sales partner, the number of customers has become more focused. So our partners can offer more thorough and comprehensive service to each and every customer. And in the end, the satisfaction from our customers has improved. And our sales partners have been able to foster stronger trust with their customers. And these customers are customers with large asset holdings to begin with. So with the improvement of satisfaction and trust, they may choose to offer Nomura more money and workplace business with IB and with wealth management, they have a common KPI as they engage in business activities.

As you know, IB has a very robust franchise, which will be leveraged to offer these solutions to our corporate clients. Human resources investment is an area where many of our customers have become keenly interested. So it's become easier to offer our proposals and solutions. Of course, there are differences company by company, and we are providing customized approach depending on the requirements of our corporate clients. And also alliance is expanding.

So new introduction and sales is doing -- going on well.

[Unknown Analyst]

I have a follow-up question. Next page, Page 27. Accounts with balance equity holding accounts in this quarter, 360,000 accounts with balance and 280,000 equity holdings accounts had an increase. What was the reason behind?

[Takumi Kitamura, executive]

LINE securities were taken over by Nomura Securities. That's why.

[Operator]

The next question is from [indiscernible] from Bloomberg Intelligence.

[Unknown Analyst]

Regarding recurring revenue asset, I have three questions. First, revenue divided by assets. So when we calculate the ratio compared to the previous quarter, the ratio has come up. And even when you calculate the average. So maybe that's due to the change in the mix. And -- but there was an explanation previously provided that the marginal return on asset does not go up, but was there a change in the mix that contributed to the improvement in the ratio?

And secondly, seasonality-driven improvement, recurring revenue, what kind of recurring revenue is seasonally driven? With such recurring revenue seasonally driven go up in the third or fourth quarter as well as the second quarter?

And then thirdly, recurring revenue is steadily increasing. But what is going to be the pace or speed? Is there going to be a major driver that will accelerate the speed of expansion. For example, in the second half, there will be large IPOs. And when you have deal flows, we did accelerate. And when workplace business become more active, would it accelerate the recurring revenue. So what kind of changes do you expect will serve as the driver that will accelerate the recurring revenue?

[Takumi Kitamura, executive]

Thank you very much for your question. Firstly, in terms of product mix, significant change is not expected as I believe I explained. But it is not that there is no impact for example, private asset type or alternative-type assets when they flow in, then margin or return will go up. So product mix had some effect.

And regarding seasonal factors, so semiannual fee that we received in September and in March, we received semiannual fee. So in the fourth quarter and the second quarter, so there is a tendency of boost from the semiannual fee because of the timing of receiving such fees. And from here, how do we further increase the revenue?

We have advisory services, which we would like to strengthen further rather than pursuing transactions we would like to closely manage clients' portfolio and provide advice. So when customer satisfaction or trust owners grow, then we expect them to shift more assets to Nomura.

In the past transaction with Nomura Securities centered on flow or equities transactions, but I believe there is a gradual shift. But by increasing the level of our services, we could expect customers to shift their portfolio more to Nomura, that is going to be the biggest driver.

[Operator]

The next question is by Citigroup Securities, Niwa-san .

[Koichi Niwa, analyst]

This is Niwa of Citi. Are you receiving my voice?

[Takumi Kitamura, executive]

Yes, we can hear you. .

[Koichi Niwa, analyst]

I have a couple of questions. First, M&A. Another question, Wealth Management segment. So one question each. First, M&A targets. To date, at large meetings, you talked about asset management area being the target of M&A. Is that the right understanding? And if possible, what's the missing piece for Nomura?

The reason I asked this question. Recently, in alternatives, there have been some attractive deals. And recently, large financial institutions, asset management, M&A appetite has risen quite significantly. And yet I think there are too many players do you still want to go in. So that's my first question?

Secondly, in Wealth Management, new acquisition, new customers. My question will overlap with Otsuka-san's question. But in the previous quarter, you talked about private wealth management, high net worth and you're doing well in terms of acquisition of new customers through reference. And when we just take a look at the acquisition of new customers, the number seems to have gone down. Is this a onetime off trend? Or do you think that you've gained enough new customers so that there will be a slowdown? Or do you still have more room for increasing number of customers?

[Takumi Kitamura, executive]

First of all, on the target of M&A, asset Management, is that a target area? Yes. It continues to be our target area. What's our missing piece? NAM is the biggest asset management company in Japan. In terms of foreign equity management, we are proud to have a certain track record, but the focus is limited. That taken into consideration. I think it's right to say that the rest is a missing piece. And of course, we're interested in alternatives. But valuation-wise, we are watching at the expensive price. So where is the market? What's the opportunity? And how much room do we have in terms of our capital? We will continue to monitor the situation.

On the acquisition of new customers, it's not that we're trying to build up the number of customers. Our priority is rather than seeking maximization of the number of customers, we want quality customers. We want to attract quality customers. We want to offer services to quality customers.

As I already mentioned, per partner, the number of customers, one partner covers has been reduced. So that means that the time each partner spend per customer is longer, so more services being provided to customers. And there's higher satisfaction so much so that we want our customers to refer us to friends and families. And the partners have more time. So when I talk with partners, I think there is a more of a mood to try to cultivate new customers.

So in the first half, the opening of new accounts has risen quite significantly. You said that there's lack of visibility, and that's something that we need to think about. But we will continue to expand the coverage of our customers.

[Koichi Niwa, analyst]

Sorry, I haven't done enough homework, but on M&A opportunity, you are the biggest company in the sector, but in terms of customers, I don't understand where the customers are in terms of new customers who still don't have a transaction with Nomura, do you think that the customer number can grow double, triple of where it lies today?

[Takumi Kitamura, executive]

Thank you very much. It's also partly due to the segmentation of our customers. To a certain extent, yes, we have customer coverage, but -- what about the potential? I think there still is huge potential. Maybe a customer has opened an account but not deposited much money. And there are inactive customers.

So this customer has an open account, and we want to attract the customers to do more transactions with Nomura and new emerging customers who are about to become the next-generation high net worth. We want to reach out more to such customers, too.

For example, one area we are focusing on is workplace. I think this could become a gigantic market. And Niwa-san, you've observed overseas markets. So you know well the characteristics of such segment. And there is enormous potential in such a market. So we will continue our approach to the workplace business and reach out to those customers. We've been able to reach out to customers, but there still remains areas where we haven't yet been able to reach out.

[Operator]

It's time to finish and we would like to conclude question-answer session. If you have some more questions, please ask our Nomura Holdings IR Department. In the end, we would like to make closing address by Nomura Holdings.

[Takumi Kitamura, executive]

Thank you very much. So Q2 result was pretty strong. As we analyze our performance from various perspectives. And for example, in Wealth Management, PTI margin over the last year, we have seen great progress. Looking back on the past year, there has been a tailwind of market, and we do understand that. But more than that, our own measures took effect and resulted in numbers.

For wholesale has been struggling for a while, but we are starting to see bright sign in wholesale, even though we are not satisfied with where we are, 11.6% of ROE, you would wonder whether it is sustainable or not. So we would like to deliver such a level of number in a stable manner. So for that, we would like to diversify revenue and generate high-quality revenue, while at the same time, controlling cost and risk. So we do -- we would like to do our best to deliver the good performance, and thank you for your continued support. Thank you.

[Operator]

Thank you for taking your time. And that concludes today's conference call. You may now disconnect your lines.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]